US consumer inflation rose to its highest level in three years in May, according to official figures released on Wednesday, as soaring energy costs continued to drive price increases across the world’s largest economy.
Data from the US Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased by 4.2 per cent year-on-year in May, up from 3.8 per cent recorded in April.
The latest figure represents the highest annual inflation rate since April 2023 and was broadly in line with market expectations.
The surge in inflation has largely been attributed to rising energy prices following the US-Israel conflict with Iran, which began in late February. The conflict intensified concerns over global energy supplies after Iran retaliated by effectively shutting the Strait of Hormuz, a critical shipping route through which around one-fifth of the world’s oil and gas supplies normally pass.
US President Donald Trump has maintained that the spike in prices will be temporary and expressed confidence that a peace agreement will be reached soon. However, the rising cost of living has become a major concern for American voters ahead of the midterm elections scheduled for November.
Trump’s Republican Party is seeking to retain control of both chambers of Congress, but persistent inflationary pressures are expected to pose a significant political challenge.
The May inflation report revealed that energy prices rose by 23.5 per cent compared with the same period last year, while petrol prices surged by 40.5 per cent.
Food costs also continued their upward trend, with grocery prices increasing by 2.7 per cent year-on-year for the second consecutive month.
American households have faced prolonged financial pressure from elevated inflation, with prices remaining stubbornly high years after the COVID-19 pandemic disrupted global supply chains and economic activity.
Core inflation, which excludes the more volatile food and energy categories, stood at 2.9 per cent in May, slightly higher than the 2.8 per cent recorded in April.
The US Federal Reserve maintains a long-term inflation target of two per cent. Its policy-making committee is scheduled to meet next week to decide on interest rates.
Financial markets widely expect the central bank to leave interest rates unchanged at the upcoming meeting. However, investors are increasingly pricing in the possibility of further rate increases later in the year, contributing to renewed volatility in equity markets.